He may only be the world's 144th-richest man (according to Forbes' 2010 ranking), but New Zealand tow-truck driver turned billionaire Graeme Hart is riding high in the plastics packaging universe.
Pactiv Corp., maker of Hefty trash bags, said Aug. 17 that it will be acquired by a subsidiary of Hart's Rank Group Ltd. in a deal worth about $6 billion.
Reynolds Group Holdings Ltd. of Auckland, New Zealand, will buy Pactiv of Lake Forest, Ill.
According to an Aug. 17 news release, Reynolds Group is offering Pactiv shareholders $33.25 per share, a premium of about 39 percent more than the closing price of $23.97 on May 14, the last trading day before reports of a potential deal.
Reynolds officials said they expect to save up to $200 million through synergies between the two companies, in part by closing some thermoforming plants.
Tom Degnan, CEO of Reynolds Group Holdings Ltd., said in an Aug. 18 conference call that Reynolds expects to save money on resin purchasing, as it goes from buying 1.5 billion pounds of resin annually to 3 billion pounds. He added that Reynolds will save money on freight and warehousing, because Pactiv has a superior distribution operation.
Degnan specifically said the company will be able to close some plants because the combined Pactiv-Reynolds operations will have excess thermoforming capacity. He did not identify the plants that will be closed.
Pactiv's board unanimously approved the deal, according to the release.
Credit Suisse acted as the lead financial adviser to Pactiv, according to the release. Perella Weinberg Partners LP acted as independent financial adviser to the board of directors of Pactiv. Skadden, Arps, Slate, Meagher and Flom LLP is acting as legal counsel.
We are excited to join with Reynolds' consumer and food-service businesses to grow and add more capabilities for our customers, Pactiv Chairman and CEO Richard Wambold said in the release. All of the Pactiv team takes pride in the fact that we have been able to create the shareholder value released by this transaction, and we are pleased to join a group that is committed to the growth of both its packaging and consumer businesses.
In an Aug. 17 telephone call, Pactiv spokesman Matthew Gonring said the acquisition, which is expected to close at the end of 2010, will not alter Pactiv's relationships with its suppliers and customers.
The transaction ends market speculation over which company would win the bidding war for Pactiv: Auckland, New Zealand-based Rank Group, private equity firm Apollo Global Management of New York, Georgia-Pacific Corp. of Atlanta, or Wichita, Kan.-based Koch Industries Inc.
Pactiv is an outstanding company. It is a clear leader in its markets as a result of its broad product line and unique distribution system. I am excited about the opportunity to grow Pactiv's foodservice and Hefty consumer businesses and to be associated with the people who have made it such a successful company over the years, Hart said in the release.
While Hart who's reputedly worth about $5 billion rarely gives interviews, he has given away dribs and drabs of his strategy in published reports, mostly by Australian and New Zealand media.
He drew up the idea for Rank Group during the 1980s as an MBA student at Otago University in Dunedin, New Zealand.
Rank Group assembled the major components of Reynolds Group during the closing years of the last decade:
* In 2006, it purchased paperboard carton maker Evergreen Packaging of Memphis from International Paper Co. for $413 million.
* In 2007, Rank Group bought SIG Holding AG, a Swiss maker of PET blow molding machinery and carton packaging, for $2.5 billion.
* It paid $2.7 billion in 2008 to get Pittsburgh-based Alcoa's Closure Systems International, Consumer Products, Flexible Packaging and Reynolds Food Packaging.
* In February, Reynolds Group acquired beverage closures manufacturer Obrist Americas Inc. of Sandston, Va., for $35 million. The acquired company was renamed Closure Systems International Americas Inc.
Reynolds Group operates in four segments: Evergreen (paper cartons); SIG (aseptic beverage cartons); Reynolds Consumer (foil, wraps and bags); and Closures Systems International (beverage caps and closures).
In 2009 the businesses posted earnings before taxes, debt and amortization of 665 million euros ($859 million) on sales of 2.8 billion euros ($3.6 billion), compared to EBITDA of 521 million euros ($671 million) on sales of 2.9 billion euros ($3.7 billion) in 2008.
The group employs 10,700 at 51 plants in more than 20 countries.
Pactiv reported profit of $75 million on sales of $973 million for the second quarter of 2010 compared to profit of $80 million on sales of $901 million for the year-ago period. The company's overall sales were $3.4 billion in 2009.
According to Securities and Exchange Commission filings, Pactiv operates 43 manufacturing sites in North America and one in Germany. It has two joint ventures in China making corrugated paper cartons.
Ninety-six percent of Pactiv's sales are to North American customers, the biggest of which is Wal-Mart Stores Inc., which accounted for 21 percent of Pactiv sales in 2008 and 2009. Pactiv employs 12,000.
In an Aug. 17 e-mail, John Hart, (no relation to Graeme Hart), plastics and packaging director at P&M Corporate Finance LLC in Southfield, Mich., said that the combination of Reynolds Group and Pactiv will create a highly profitable company due to the strong margins of both organizations and potential synergies.
That's important, John Hart said, because Rank and Reynolds contributed cash to the deal, and leveraged long-term relationships with Credit Suisse and an Australian lender to get additional debt financing.
We estimate that Reynolds and Pactiv combined will have revenue exceeding $7.2 billion and EBITDA of $1.5 billion, he said. Among the global packaging landscape, we estimate that [only] Amcor ($8 billion) and Rexam ($7.6 billion) are larger [in sales]. We calculate that the combined Reynolds/Pactiv entity will have the highest EBITDA in the packaging industry.
John Hart called the Reynolds/ Pactiv deal a brilliant packaging consolidation and roll-up strategy by Rank Group and its owner Graeme Hart, and said analysts are looking for Rank Group shortly to integrate the businesses and to complete an initial public offering.